WSJ: Another Shale Take Down Article

The Wall Street Journal has written another article on shale. They previously wrote an article about how shale production estimates were too aggressive. Now this article is about the parent-child problem. For shale, the parent is the original drilled well while the child are wells drilled near to the original well. From the article, it appears that child wells are drilled anywhere from 275 feet to 600 feet from the parent.

Some thoughts from the article:

1. The argument that wells could be drilled closer together and yet produce the same amount of oil resulted in shale corporations to raise close to $57 billion in equity and debt in 2016.

2. The article discusses how Laredo touted it could drill 32 wells on a unit. Now they've reduced that to between 16 and 24 wells. Since the promise was that each well could pump 1.3 million barrels of oil and gas that means that their forecasts are off by at least 10.4 million barrels per unit (1.3 x (32 - 24)).



3. 50% of Permian wells are child wells. One has to wonder if forecasts of shale production properly adjusted for reduced production from child wells.

4. Though wells need to be drilled further apart: Many companies haven’t publicly adjusted their inventory estimates as they revise their well spacing assumptions, but many have stopped touting how many potential wells they have.

5. Americans do love to tinker so there are attempts to innovate out of this problem.

Many producers have drilled longer child wells and pumped more sand and water into them in response. Such techniques can help child wells extract as much oil as the parent, but come at a higher financial cost. Some companies are also fracking wells simultaneously, which they say avoids the pressure drops seen when drilling a parent well and subsequently adding child wells.

One measurement that I've been keeping track of is DUCs (drilled but uncompleted wells). Since December 2017, DUCs have increased from 7,493 to 8,798 (January 2019). (Click on link for backup.) In the Permian specifically, it has increased from 2,777 to 4,170. I wonder how many of those were drilled too close together (that is less than 600 feet). And I wonder if any forecasts made based on DUC future output didn't take into account the fact that production is going to come in lower than anticipated. And since some corporations are looking at drilling wells further apart, I wonder how many of those wells will never be utilized.